By Scott Cendrowski, writer-reporter
FORTUNE — It’s not every day that a fund promises to return more of your money. But that’s what the 82-year-old Adams Express closed-end fund is doing.
The Baltimore company said Thursday that it will return 6% of the $883 million fund’s assets annually to shareholders — partly with income from dividend paying stocks, and partly from capital gains.
A quick primer on closed-end funds: the publicly-traded investment companies raise money via an IPO to buy assets like stocks and bonds. There’s a fixed number of shares that trade, so the fund’s stock price can fluctuate considerably from the collective worth of its assets, also known as its net asset value, or NAV. (The same goes for any other company: if a bank owns $100 worth of mortgages, but its stock price only reflects $90 worth, it’s said to be trading at a discount.)
Adams Express (XADEX) has traded at a 15% discount to its NAV for years. At first the fund’s directors tried repurchasing shares to boost the stock price. It didn’t work. Then things heated up in March when one of Adams’ largest shareholders, a Greenwich Conn.-based hedge fund, proposed a plan to cut shares outstanding by 50% to boost the stock. Luckily for Adams Express CEO Doug Ober, who ostensibly believes the fund’s current stocks will rise in the future, the idea failed.
“So we debated long and hard what actions to take,” says Ober. Part of the problem, as he sees it, is that Adams Express’ listing in the Wall Street Journal doesn’t show the fund’s total yield — the dividend yield plus capital gains. It only shows a paltry 1.9% dividend yield. That means income-oriented investors dismissed Adams Express out of hand.
Ober hopes the 6% promise to shareholders restores some interest in the fund, and reduces its shares’ 15% discount.
It’s tough to know whether the move will reduce the discount. But it’s fair to say in a era of steadily climbing fees amid middling fund performance, this news is a win for investors.